Toshiba Corp. is facing a significantly deteriorating financial situation as the company is expected to book an asset impairment loss in the hundreds of billions of yen from its nuclear plant business in the United States in its consolidated financial statement for the business year ending March 2017, casting a shadow over the firm's restructuring plan centering on its nuclear power and semiconductor businesses.
At a press conference on Dec. 27, Toshiba failed to provide detailed explanations on the impact of the colossal loss on the company's business performance and the need to review its projects. Toshiba will likely be pressed to drastically revamp its management system.
"I offer my sincere apologies for causing trouble to all of our stakeholders," Toshiba President and Chief Executive Officer Satoshi Tsunakawa told a press conference at the company's headquarters in Tokyo. "I'm keenly aware of my (management) responsibility," he said, adding, "We would like to focus on earnestly addressing the situation at the moment."
Toshiba needs to write down the value of its assets at CB&I Stone & Webster Inc.'s nuclear construction business that Toshiba's U.S. nuclear subsidiary Westinghouse Electric Co. acquired in December last year. CB&I has been involved in two nuclear plant projects in the United States. Toshiba revealed that after scrutinizing the cost for completing the plant construction, it emerged that more workers were necessary than expected.
For Toshiba, the potential write-down has come out of the blue. Even President Tsunakawa confessed that he only received the report on the matter in mid-December. The company abruptly cancelled media interview appointments with President Tsunakawa on Dec. 26, the very day the interviews were scheduled to take place. The abnormal situation represents confusion in the company, raising the possibility that Toshiba has lost its control over Westinghouse. "We were surprised to hear about the possible losses," said one of Toshiba's external directors.
Toshiba's shares plunged at the Tokyo Stock Exchange on Dec. 27 after reports on the potential massive loss. The decline rate of the closing stock price from the day before hit a staggering 11.6 percent.
Toshiba is still reeling from its window-dressing scandal, after which it posted a record 460 billion yen final deficit for the business year ending March 2016 due in part to soaring costs for reviewing its business projects. While the company had anticipated to finish 145 billion yen in the black for the business year ending March 2017 due to its brisk semiconductor business, the newly announced potential losses could push the company into the red for three consecutive years.
If Toshiba was to suffer excessive liabilities, in which the amount of debts incurred by a company surpasses its asset amounts including shareholders' equity, the Tokyo Stock Exchange's delisting criteria could be applied to Toshiba unless the firm was to take swift countermeasures. President Tsunakawa demonstrated his willingness to consider capital reinforcement, saying, "We'd like to gain cooperation from banks after explaining our situation to them." However, because of the previous irregular accounting scandal, Toshiba shares have been designated as securities on alert by the Tokyo Stock Exchange and the company cannot openly increase its capital in the market. Therefore, all Toshiba can do will be limited to measures such as an allocation of new shares to its business partners.
As domestic and foreign demand for the nuclear plant business has plummeted in the wake of the Fukushima No. 1 Nuclear Power Plant disaster in 2011, Toshiba faces the possible need to fundamentally review its nuclear plant business.
"It may be necessary to reassess the position (of our nuclear plant business) in the future," President Tsunakawa said.
Takeo Kikkawa, professor at Tokyo University of Science who is versed in nuclear plant issues, commented, "We are facing a situation where Mitsubishi Heavy Industries Ltd., Toshiba Corp. and Hitachi, Ltd. no longer exist on an equal footing. Their realignment could progress."